Cash in advance
Before shipment, either in full or as an agreed deposit.
This shows the sequence of events. Actual timing comes from the contract and bank instructions.
Buyer and seller risk
The buyer has cash at risk before the goods arrive. The seller reduces its exposure to buyer non-payment by the amount already received.
Documents to prepare
Purchase contract, invoice, verified beneficiary instructions and proof that any agreed milestone for the balance payment has been met.
Agree inspection and refund provisions in the contract. The payment receipt alone does not establish whether the goods meet the specification.
Letter of credit
At sight or at a stated future maturity, provided the credit's conditions and documentary presentation requirements are met.
This shows the sequence of events. Actual timing comes from the contract and bank instructions.
Buyer and seller risk
The bank's payment undertaking is governed by the credit's terms. The buyer also needs a sound goods contract; documentary compliance does not replace a product-quality inspection.
Documents to prepare
The documents named in the credit. These may include a commercial invoice, transport document, packing list and inspection certificate.
Review the draft with the bank before issuance, including shipment dates, document wording and presentation requirements. Amendments and discrepancies can add cost.
Documents against payment
Under the collection instructions, the collecting bank releases the specified documents once the buyer has paid.
This shows the sequence of events. Actual timing comes from the contract and bank instructions.
Buyer and seller risk
The banks handle the collection without giving the payment undertaking of an LC. The seller still bears the risk that the buyer will refuse to pay.
Documents to prepare
Collection instructions, the draft, and the agreed shipping and commercial documents.
Check how the documents control access to the cargo. Include a plan for storage and return costs if the buyer refuses them.
Documents against acceptance
The documents are released when the buyer accepts the draft. Payment is due at the agreed later maturity.
This shows the sequence of events. Actual timing comes from the contract and bank instructions.
Buyer and seller risk
Once the documents are released, the seller is extending credit to the buyer. Acceptance of the draft does not create a bank payment guarantee.
Documents to prepare
Collection instructions, a time draft, and the commercial and shipping documents specified in those instructions.
Record the exact maturity date and agree the payment follow-up process before releasing documents.
Open account
The seller ships before payment is due on the date specified in the contract.
This shows the sequence of events. Actual timing comes from the contract and bank instructions.
Buyer and seller risk
The buyer has time between shipment and payment. During that period, the seller carries the buyer's credit risk.
Documents to prepare
Contract, invoice, delivery records and a clear agreement on the event that starts the payment period.
Specify whether the payment period starts on the invoice, shipment or delivery date. Check outstanding balances against the agreed limits.
Define when the payment period starts
“After shipment” and “after delivery” refer to different events. State the event that starts the payment period, the evidence required and the time allowed to pay. Add those dates to the order calendar.
Record delivery terms separately
Incoterms® allocate delivery responsibilities, costs and risk. Your sales contract also needs the payment date, method and currency.
Read ICC’s explanation